Karlsson, Sune () (Dept. of Economic Statistics, Stockholm School of Economics) Skoglund, Jimmy () (Dept. of Economic Statistics, Stockholm School of Economics)
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This paper considers maximum likelihood estimation and inference in the two-way random effects model with serial correlation. We derive a straightforward maximum likelihood estimator when the time-specific component follow an AR(1) or MA(1) process. The estimator is easily generalized to arbitrary stationary and strictly invertible ARMA processes. In addition we consider the model selection problem and derive tests of the null hypothesis of no serial correlation as well as tests for discriminating between the AR(1) and MA(1) specifications. A Monte-Carlo experiment evaluates the finite-sample properties of the estimators, test-statistics and model selection procedures.
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Length: 31 pages Date of creation: 15 May 2000 Date of revision: Publication status: Published in Empirical Economics, 2004, pages 79-88. Handle: RePEc:hhs:hastef:0383
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Find related papers by JEL classification: C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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